Guarantees in Israeli Development Deals
Guarantees in Israeli Development Deals
Israeli law and market practice have built an extensive system of guarantees around real estate development. A family buying a new apartment off plan, a landowner in a combination deal and an elderly owner in a pinui-binui building all rely on documents issued by banks or insurers that promise to pay if the developer fails. For an American investor far from the project, these guarantees are often the most concrete protection available. Yet the terms are technical, and a guarantee that looks strong on the cover page can contain conditions that limit it. This page explains the main types and how to check them.
Guarantees for buyers of new apartments
Israeli law requires developers who receive payments from buyers of new apartments to secure those payments. The most common method is a bank guarantee under the Sale Law, issued against each payment, or an insurance policy with similar effect. If the developer cannot deliver the apartment, the buyer can call the guarantee to recover the money paid. American buyers should insist on receiving the guarantee for every payment and should not transfer funds outside the project account named in the contract.
Guarantees in urban renewal
Owners in TAMA 38 and pinui-binui projects give up their existing apartments temporarily in exchange for new ones. The agreement should therefore include a package of guarantees issued before the owners leave their homes.
A Sale Law type guarantee or equivalent covering the value of each new apartment
A rent guarantee covering payments for alternative housing during construction
A tax guarantee in case the owners are charged taxes that the developer undertook to pay
A performance or completion guarantee
A warranty guarantee for defects after delivery
Guarantees for landowners in combination deals
A landowner who transfers rights to a developer in exchange for future units is in a similar position to a buyer who pays in advance. The combination agreement should provide guarantees that cover the value of the units owed, released only once the units are delivered and registered. Without them, the landowner risks losing both the land and the promised apartments if the developer collapses.
Bank guarantee or insurance policy
Both bank guarantees and insurance policies are used in Israel. A bank guarantee is usually autonomous, meaning the bank must pay on demand if the stated conditions are met. Insurance policies may involve a claims process. Neither is automatically better, but the issuer must be a recognized Israeli bank or licensed insurer, and the document must name you or your representative as beneficiary.
Reading the fine print
The value of a guarantee lies in its details. Check the amount and whether it is linked to an index, the expiry date and whether it renews automatically, the conditions for calling it and any exclusions. A guarantee that expires before the project is likely to finish offers weak protection. Your lawyer should confirm each guarantee directly with the issuer rather than relying on a copy sent by the developer.
Practical steps from the United States
Keep scanned copies of all guarantees in a secure folder, together with the contract clauses that entitle you to them. Diary the expiry dates. If you appoint a representative in Israel, make sure your power of attorney allows that person to act on the guarantees if needed. Guarantees are rarely called, but when they are, speed and paperwork matter.
Where developers provide guarantees directly
Beyond bank and insurance instruments, some developers offer corporate guarantees or guarantees from their backing companies. These can add comfort but depend entirely on the financial strength of the guarantor. Treat them as a supplement to, not a replacement for, the statutory protections. As with every legal matter, have an Israeli lawyer confirm what you are entitled to, and ask a US CPA whether any payment under a guarantee would have US tax consequences.
Frequently asked questions
Do I get a guarantee when buying a new apartment in Israel
Yes. Developers must secure buyers' payments, usually through a bank guarantee or insurance policy under the Sale Law. Ask for it with each payment.
When should renewal guarantees be issued
Typically before owners hand over their apartments for demolition or major works. Never vacate your apartment before your lawyer confirms the guarantees are in place.
Can a guarantee expire before the project ends
Yes, if it is not properly drafted or extended. Check expiry dates and renewal mechanisms carefully.
Is a developer's personal guarantee enough
It adds some protection but depends on the developer's assets. Bank and insurance guarantees are generally more reliable.
Elkayam Group
Elkayam Group can provide guarantees and works with backing companies and partners across its core fields of development, urban renewal, pinui-binui, TAMA 38 and combination deals. That combination, together with three generations of family experience, allows the group to structure deals with the protections owners and investors expect. Our Tel Aviv team works in Hebrew, English and French.
Ask us which guarantees should be part of your deal and how to verify them.
+972-53-658-4252 · support@kobielkayamrealestateltd.com · Rival St 37, Tel Aviv